InterDigital Inc (IDCC)

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=DJ THE SKEPTIC: Dangerous Liaison
By Matthew Curtin A DOW JONES NEWSWIRES COLUMN
PARIS (Dow Jones)--Combining Alcatel (ALA) with Lucent (LU) has the makings of one of those complex, cross-border industrial maneuvers that give mergers a bad name.
But the two companies have little choice other than to bulk up to keep pace with mergers among their main customers.
When AT&T (T), BellSouth and Verizon requested proposals for a new high-speed fiber-to-the-premises network late last year, between 15 and 18 vendors were reportedly involved in submitting at least half a dozen offers to the three companies - which have since become two.
The merger of AT&T and BellSouth seems to have concentrated the minds of telecommunications equipment vendors even faster than many suspected, particularly at Lucent, one of those seen as a loser from that merger, if not Alcatel, seen a beneficiary.
The question remains whether putting Alcatel and Lucent together is the right response.
The merger would create one of the world's biggest vendors, with a strong position in the U.S., where Alcatel currently lags Lucent.
Alcatel's strengths in fixed line, notably ADSL, as operators upgrade to IP, complements Lucent's stronger presence in wireless infrastructure, though neither has made much headway in winning customers for 3G gear.
Nor is either company so lean, despite all the post-bubble restructuring, that there shouldn't be important savings on R&D and administrative costs, as well as asset sales.
But a merger still looks risky.
Think of the organizational and cultural challenge of putting a large French-based equipment-maker together with a U.S. rival, when both retain unprofitable legacy businesses, as the pace of technological change forces the industry at large to rip up its old business models.
Getting bogged down in integration problems could prove fatal for Alcatel and Lucent, given increased competition from Asian rivals like Huawei and Samsung.
And doing the deal won't be easy. Politics, from the French government's view of Alcatel as a custodian of French industrial knowhow to U.S. lawmakers' likely sensitivity to any suggestion Bell Labs might fall into French hands, may get in the way.
Talk of a merger of equals is all very well, but the terms will have to take into consideration Alcatel's bigger market valuation and superior earnings prospects, and the ever-delicate issue of who manages the new entity.
And in the current M&A climate, the cozier the deal looks for Alcatel Chairman Serge Tchuruk - who is aiming for a last hurrah - and Lucent counterpart Patricia Russo, the more tempting it may be for a third party to make Lucent shareholders a more enticing offer.
(Matthew Curtin has been a financial news reporter since 1990, and has reported on international finance and business for Dow Jones Newswires - from South Africa, Singapore and now Paris - since 1994. He can be reached at [phone] or by e-mail: [e-mail])

(END) Dow Jones Newswires
03-24-06 0750ET
Copyright (c) 2006 Dow Jones & Company, Inc.